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Gold Mining Stocks Mismatch : Gettin Jiggy With ‘Em!
Did you hear that ‘snap’ last week? It was the noise of most
important stock indices finally breaking their supports. Around the
world, markets have entered their downward acceleration. Most indices
are quickly nearing in on their long term moving averages (at 200 days)…
as we expected.
Investors didn’t take the recent standpoint of the Fed all that well.
Bernanke wasn’t alluding to a next round of Quantitative Easing, the ‘Elixir of Life’
of the economic revival and the rise of stocks in general over the last
few years. Now that the systemic problems are picking up steam again,
the fear of a looming crash arises.
In reality, these kind of mood swings usually means ‘Sell’ on the
market floors. As most traders are about to push their sell-buttons, no
one cares for fundamentals anymore. Everything is just dumped en masse.
This is what we experienced in the recent smallish sell-off.
Everything was thrown out, the most profitable trades of the recent
months (banks, techs) ahead, but also less evident sectors, like gold
mining stocks, were removed from the ports.
Gold prices have been steady hovering above $1,500/ounce. Still, the
major gold stock indices, like the HUI of the AUX, lost more than ten
percent. Due to the fierce pullback, gold stocks are now trading at the
same level beginning 2008. With that difference, the price of gold was
trading $900 per oz back then!
So the setback of gold stocks versus gold isn’t recent phenomena. The ratio has been lame for years now!
So why in god’s name are investors avoiding this asset class?
Because, in the end, fundamentals for gold companies have never been
better: cash flows are going very strong, with profits exploding over
the recent quarters! This, of course, doesn’t come as a surprise, with
gold rising over 50% during the period.
We even looked at the rise of their input costs, but no dramatic
increases whatsoever. Moreover, the price of oil was shooting up towards
$150 a barrel back in those days, while today, oil is costing about 30
percent less!
Also external factors, like natural disasters, big accidents, failed
acquisitions, fraud, … nothing major happened to shock investors. We
even noticed that gold mining companies recently lifted their dividends
to allure investors. But thus far brought little relief.
We fear that the major issue with gold stocks is still the negative
stance of the investment crowd. The sentiment is reserved ever since the
crash of 2008. This is starting to lead towards extreme low valuations,
with market leaders like Newmont Mining and Barrick Gold trading at expected price-earnings ratios of 11x and barely 9x respectively!
This mismatch between gold en gold stocks won’t last much
longer, and will have two potential outcomes: the price of gold is on
the eve of a violent correction, or gold stocks are about to take off!
As the matrix for gold – a negative real interest rate in
combination with sustained financial stress – hasn’t subdued, on the
contrary, things are getting worse by the day, we are betting the farm
on the second option. Prepare for fireworks in the gold stock arena in
the coming months, as the price of gold will be creeping higher!
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As I see it, this is just another instance of stocks no longer trading on fundamentals. It's mostly algorithmic now and, IMO, ETFs have had the effect of taking away research from many minds and concentrating it into a few. When we are lazy and buy into an ETF, we're delegating research to the fund manager who, in most cases, is probably just an overpaid monkey. Issues that are members of ETF baskets track in unison regardless of actual fundamentals, causing people who actually spend the trouble to set up hedges to get nowhere fast.
The situation is unhealthy. It is destroying proper price discovery and creating higher risk in the system. Inevitably, it will break down, it has to.
So in the short to medium term, it's annoying, but longer term if you are patient and don't employ too much leverage to get shaken out, well researched positions will pay off handsomely when it all breaks down.
from my perch it appears that if the market is getting whacked gold, crude whatever is tied to a commodity goes down. Obviously the opposite holds true as well. There would have to be an extreme case to have gold, gold stocks go up in a down market....
Follow-up:
The revalation of the value of the "naked-short" or "Counterfeit Stock" positions and their effect on the suppression of the mining companies shares would show hundreds of billions in "stolen" shareholder value.
If a company, its Executives, and Board Members, do not act to insure that shareholders "value" is protected in light of this illegal activity, they could be personaly liable for the losses?
For years we've heard the bullshit about looking out for "shareholders value" now this is an actual case where something should and can be done.
Witness Soros selling all of his GLD holdings and a lot of his shares in Novagold and Kinross.
With GLD, he's betting that bullion prices will be flat to down for the immediate future.
NG and KGC have been laggards and will continue to be so for awhile.
He picked up shares in Freeport for continued gold exposure with more exposure to copper and shares in Goldcorp for a better miner of gold.
This is the way I see it, he's looking for the leverage the miners provide and getting away from the physical side (GLD) because the bigger producers are going to see their profits go way up as long as gold doesn't collapse back to 1000 per ounce.
I'm in the same camp, I hold share in only producers like New Gold with low cost per ounce and I'm hanging on to more speculative explorers/developers like Pretium. Looking to pick up long term call options on the big producers going forward. Still going to have my physical ounces of gold for cash, but going forward the miners should start booking big profits.
MERS vs Counterfeit Share Creation
In case you thought the MERS scandal was an isolated example of corporate theft, think again. When we see fraud and corruption in every segment of government and business, why would the mining stocks be any different. We know of systematic depression of gold, and silver.
If I were a mining company Board Member, Executive, or major shareholder, I would engineer a "short-squeeze".
The naked short positions between the ETF's and the actual "legitimate" shares of nearly ALL the miners must be staggering. Everyone would like to do something, to correct the situation, to end the crime, to see just once that the "good guys" can win, with an effective strategy and a well planned execution, me included.
If I were advising a company like Newmont Mining or Barrick or Freeport, and many others, I would first set-up a forensic team led by someone like Elliott Spitzer. Then I would set a date to cancel all the old shares. I would call in all existing shares directly to the company, not the transfer agent, and reward the shareholders with a special dividend in physical gold and or silver plus rights to the new when-issued shares. I would publish the daily redemptions (tenders) vs the actual shares outstanding so that everyone could see the effect of the "naked-short" positions as they are revealed.
A published update would show, The company has X shares outstanding, and yet there are X shares being tendered. Where did all those millions of extra shares come from? Especially when ONLY "the company" is authorized to issue shares. ANY ADDITIONAL shares outstanding MUST BE COUNTERFEIT, who issued the counterfeit shares? The penalties for "Counterfeiting" are severe.
Remember, they got Al Capone on a tax offense, not on a murder rap.
Many people don't understand the "short-sale" concept but do understand the concept of "Counterfeiting" very well.
A forensic audit team handling the redemption, would be able to point out the issuance of the "naked-shorts" or counterfeit shares.
Several CEO's of major gold companies told everyone that rising costs, particularly oil, hurt their margins. The current use of huge machines take a lot of energy to run. This is particularly true where reductions of mountains is the mining mode rather than chasing a vein.
What will initially propel gold stocks out of the doldrums are the the net settlements of an extensive and relentless programme of naked shorting, as it had last year into December.
You need merely compare some of the charts. What gold mining companies are capable of is a very low P/E ratio, but a robust yield in a long term equity bear market, and possibly a yield over and above inflation.
Anybody claiming that gold mining companies 'are just paper' have absolutely no clue whatsoever what they're talking about. Returns in this sector are very rarely handed to you on a silver platter. You'll probably get your head handed to you instead.
You know...I was thinking the same thing. But...take a look at what happened in 2008...phys gold held up and then took off...and miners (along with all other paper stock) went down the poop shoot. Something just doesn't look right with the overall market right now...love the gold story...but I think this might end up being one of those things that make you go "oh...dang...yeah...that was cheap for a reason...and if I liked the gold story, maybe I should've just sacked-up and bought the real deal".
I hope you're right about the mining stocks, my IRA is parked in one.
It was great from the correction through last Nov.-Dec. then took a dive as gold and silver went ballistic.
I've heard all sorts of theories; people going to ETF's instead, or physical, or to equities because they believed the recovery story, or over fears countries would confiscate mines when the physical metals became so valuable.
???
Resource exploration stocks in North America mostly Canada. Some of these companies are sitting on multi million oz Au/Ag just waiting to be gobbled up by the majors. Two of my equities have already been bought by majors. TSX:V is the way to go.
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Too many crooks have their hands in the pots. The small "investor" is always the last to know when there's a "problem". The Rules have changed ever since The Kleptocracy have come to power. The real gold mine is the criminal naked shorting of the small miners by the insiders and Wall St.
Gold stocks, as ETFs, are a promise of delivery.
You might argue that will be impossible for governments to search every house for gold.
But gold mines are easy targets for nationalization.
Avoid all kinds of paper as a thumb rule. Markets are too rigged nowadays to be more than a casino.
++
Who cares? If others don't care to invest in the miners, that means fewer stocks which will be drawing dividends, meaning more dividends for me. I am a patient dinosaur. Silver has a place of pride in my portfolio, yet I do like seeing those annual dividends.
Jiggy deletion.
Gold mining stocks are just that, stocks, i.e. "paper". This current situation is a developing crisis in trusting the rule of law. Owning a hole in the ground with AU/AG is a risky business in that the location of that hole and it's product remain ultimately in the hands of the local governing authorities.
An advantage of gold and to a lesser degree silver is that unlike oil that must be handled, stored and consumed in large, cumbersome infrastructures, high-grade ore, dore and final products can just about be processed in ones back yard.
Too bad Teichert Construction remains a privately held concern.
Tough to time the miners. Just holding onto confetti until the turn, hope it does not get away from me. This is the only area I believe in. But for now. Very little in miners, much more in physical.
I mean really, A little white webpage with a few words on it or 7 million ounces going to 10 million ounces of money in the case of Barrick.
duhhhhhh - Google is the new currency didn't you know that?
We all have to place our bets. The choices are pretty obvious to me. On the one hand are the bankster/manipulaters holding a dollar machine, so they can buy and sell and manipulate whatever they want. Their biggest enemies are real assets but especially gold and silver. The problem they are increasingly facing are vast numbers of people around the world that are starting to get what the game is.
The next big crisis will be a currency crisis. Personally I don't want to be holding that bag when that happens. When it does happen all you folks holding currencies will probably be locked out because oooops the markets will be closed.
Screwed over again...
My adviser agees. I added Yamana (AUY), and FreeportMcMoran (FCX) which he said have strong reserves and excellent price/reserve ratios as well as good management and both are unervalued.
When you look at their cash flows they make financial companies look terrible since they are all on Fed life support. Anyway, that's what he said.
Do your research and GL!
I like AUY, EGO, KGC and GFI in au, SSRI and SLW in ag. I think the sector will get murdered with the rest of the market (for some reason hooked to the indices, HFT?). Wait for a bottom in late July or Early August then load up.
the problem is the miners have to work for a living, the financials just have to saunter on up to Mr Bernake's lunch window and get a handout.
It would be my guess the commercials are snapping up what the fundsters and privates are selling in a panic.. Same old story.
+1
What about silver juniors? They may be much better play. Mining costs are about 5 to 8 RFNs so even if silver falls there is enough margin. Hedged contracts must end some day, ongoing stocks correction also. Could end of summer be possible entry point?
umm
PE of 80 doesn't make a silver producer very attractive
80? Where have you got this data? I haven't found a pretty chart, but one source...
http://www.minyanville.com/businessmarkets/articles/invest-in-silver-coe...
... states "price-to-earnings ratio of 12 (which is about half the average PE of other large silver miners)".
So 24 could be an average in march.
I like SVM. Do you guys have more suggestions that pay a dividend? Thanks!
I think buyers of gold stocks are fearful of too much hedging by the miners. Mining companies are not gold bugs but business owners, they don't look at money that way. Also its hard to invest in companies who's current production mines are being played out (diminishing production) when you know they will have to start a large capitalisation process (stock sales) to create a new mine on properties they may own.
why shocks partner, ain't you spek'in of oil and gas companies too? Shoot, wees runn'in outa water, but that don't stop no body from buying coca kola.
Key words are 'in the coming months...' How many times have I heard this story for the last 2 years? Gold stocks set to explode! To the moon!
Yeah...you bet the farm and you just might lose it. I'll take my time investing in this area....
Having held PM stocks since 2002, I have felt much pain, at one point in 2006 I was losing 1K per minute and my colleagues were screaming, refresh again! Took the hit, did not sell and saw them recover.
We ended up naming our portfolio Bodacious as we recognized we were in a bull market that was bound to shake off the weak hands. Thanks to Jim Sinclair and his story on Jesse Livermore recommending buy and hold in a bull market, we are still long and strong but admittedly saddle sore.
You can't say that often enough.
You can say that again.
Having held PM stocks since 2002, I have felt much pain, at one point in 2006 I was losing 1K per minute and my colleagues were screaming, refresh again! Took the hit, did not sell and saw them recover.
We ended up naming our portfolio Bodacious as we recognized we were in a bull market that was bound to shake off the weak hands. Thanks to Jim Sinclair and his story on Jesse Livermore recommending buy and hold in a bull market, we are still long and strong but admittedly saddle sore.
Having held PM stocks since 2002, I have felt much pain, at one point in 2006 I was losing 1K per minute and my colleagues were screaming, refresh again! Took the hit, did not sell and saw them recover.
We ended up naming our portfolio Bodacious as we recognized we were in a bull market that was bound to shake off the weak hands. Thanks to Jim Sinclair and his story on Jesse Livermore recommending buy and hold in a bull market, we are still long and strong but admittedly saddle sore.
Having held PM stocks since 2002, I have felt much pain, at one point in 2006 I was losing 1K per minute and my colleagues were screaming, refresh again! Took the hit, did not sell and saw them recover.
We ended up naming our portfolio Bodacious as we recognized we were in a bull market that was bound to shake off the weak hands. Thanks to Jim Sinclair and his story on Jesse Livermore recommending buy and hold in a bull market, we are still long and strong but admittedly saddle sore.
Having held PM stocks since 2002, I have felt much pain, at one point in 2006 I was losing 1K per minute and my colleagues were screaming, refresh again! Took the hit, did not sell and saw them recover.
We ended up naming our portfolio Bodacious as we recognized we were in a bull market that was bound to shake off the weak hands. Thanks to Jim Sinclair and his story on Jesse Livermore recommending buy and hold in a bull market, we are still long and strong but admittedly saddle sore.
Having held PM stocks since 2002, I have felt much pain, at one point in 2006 I was losing 1K per minute and my colleagues were screaming, refresh again! Took the hit, did not sell and saw them recover.
We ended up naming our portfolio Bodacious as we recognized we were in a bull market that was bound to shake off the weak hands. Thanks to Jim Sinclair and his story on Jesse Livermore recommending buy and hold in a bull market, we are still long and strong but admittedly saddle sore.
Having held PM stocks since 2002, I have felt much pain, at one point in 2006 I was losing 1K per minute and my colleagues were screaming, refresh again! Took the hit, did not sell and saw them recover.
We ended up naming our portfolio Bodacious as we recognized we were in a bull market that was bound to shake off the weak hands. Thanks to Jim Sinclair and his story on Jesse Livermore recommending buy and hold in a bull market, we are still long and strong but admittedly saddle sore.
Dear Fred,
If you think the mining stocks are not a buy. Then sell everything and short the market. Because if mining stocks do not have a future for growth and need. Then the economies of the world are even worse.
But you could do as Goldman Sachs would prefer you to do. Buy financials, because we know that their balance sheets are prestine, (SARC). And the fact that Goldman's debt carries 26% interest on their billions owed is not a risk at all. LOL
Have a Great Day. F.Y.I. Miners and Stuff is the only thing I want to own, including as much physical as possible.
I said: "I'll take my time investing in this area...."
I have physical and will not part with it. I will buy miners when it is time and not before.
any ideas on the mining stocks ???
Still in a holding pattern here on the G stocks.
Ready to buy..
Is $1425 in the cards.. it's wait and see.
ETFs responsible for the http://thevictoryreport.org/2011/06/14/what-is-the-real-price-of-gold/ " target="_blank">discount to shares..
Reckon.
It's about time!